The US District Court for the Northern Districct of California, in Stone v. United States, 2007 U.S. Dist. LEXIS 58611 (N.D. Cal. Aug. 10, 2007), held that the appropriate discount for fractional interests in art work was five percent rather than the 44 percent valuation discount claimed by an Estate.
In an earlier proceeding, the Court reasoned that a hypothetical willing seller of an undivided fractional interest in art would likely seek to sell the entire work of art and split the proceeds, rather than seeking to sell his or her fractional interest at a discount. At a minimum, because an undivided interest holder has the right to partition, a hypothetical seller under no compulsion to sell would not accept any less for his or her undivided interest than could be obtained by splitting proceeds in this manner.
In addition, the Court determined that the Estate was not entitled to claim a discount for appraisal fees, but that the Estate was entitled to a discount of 2% to account for the actual costs of selling the art by an auction house, as well as a discount of $ 50,000 to account for legal fees required to enforce the hypothetical seller's right to partition. The Court also concluded that "some discount is appropriate to allow for the uncertainties involved in waiting to sell the collection until after a hypothetical partition action is resolved."
Posted by Lewis J. Saret, General Editor, Wealth Strategies Journal.
Leave a comment